Study Of Legal Issues Concerning The Vie Structure

Variable Interest Entity(“VIE”)structure refers to a red-chip architecture that the enterprise completes the input of domestic investment interest and the transmission of external economic benefits to control the domestic operating entity through the VIE agreements signed by the wholly foreign owned entity and the domestic operating entity.As a special framework for overseas financing or overseas listing,the variable interest entity structure is based on the requirements for the processing of consolidated financial statements of variable interest entities by overseas listed accounting standards.The application of this structure in China is generally based on circumventing the regulatory process of foreign investment and foreign investment access restrictions in order to go abroad.Since Sina's listing in the United States on the Nasdaq in 2000,the variable interest entity has been widely used in the Internet industry and has gradually extended to other industries.Since 2011,China has entered a new historical period in which the VIE structure was mainly removal for the purpose of returning to the domestic market.The main reason for this phenomenon is as follows: first of them is the high-risk nature of the VIE structure,such as the frequent occurrence such as the Alipay incident and the New Oriental incident,which has caused offshore investors to gradually lose theirtrust and desire to invest in this structure;Secondly,because of the legitimacy of the VIE structure,our courts and arbitral institutions have rejected the relevant VIE agreement in some cases,which means that once there is a conflict of interest between the founders and the investors;foreign investors cannot protect themselves based on the signed VIE agreement;last but not least,the evolution of China's regulatory policies do count;since the State enacted the “Foreign Investment Law(Draft)” as the first attempt to govern the VIE structure in 2015,the structure itself has been unable to become a circumvention of regulations and break through foreign access restrictions.With the development of China's domestic market and the country's encouragement and call for the return of special structural enterprises,China has launched a upsurge of the removal of the VIE structure.The removal of the structure and the return of the domestic market have multiple modes for companies to choose.For the removal of,companies can choose to completely dismantle the offshore structures,associated mergers and acquisitions or split-separation services based on the level of the company.In practice,due to the requirements of the CSRC,the enterprises generally need to completely dismantle the offshore structure.At this time,the VIE structure enterprises can choose the OPCO to be listed,that is,ICP licensed companies as the main body of domestic listing,and can also choose the original foreign-owned enterprise as the domestic listing main body.The basis for selection mainly lies in the restrictions on FDI of the industries in which companies are located and the comparison of operating financial indicators.Due to the complexity of removal and regression,various issues may be involved throughout the process.Including the operational issues of the relevant VIE agreements and changes in the corporate structure,as well as legal compliance issues.The removal of the VIE structure requires the enterprises to execute a series of legal procedures such as approval of foreign investment,cancellation of foreign exchange accounts,and tax concessions.The compliance of these procedures will directly affect the process of domestic listing.Therefore,companies are required to pay special attention to relevant legal issues.With the introduction of the "Foreign Investment Law(Draft)" in 2015,China's supervision of the VIE structure has entered a new period.Many types of enterprises have also completed the removal and returned to the domestic market.In the upsurge of the removal of the VIE structure,understanding the historical reasons and practical operations of this wave,and using existing relevant laws and regulations to jointly complete supervision will be the most important part of this period.